The SEC further asserted that the two leaders of the scheme designed a “secret web-based location to transmit the stolen data to traders in Russian Federation, the Ukraine, Malta, Cyprus, France, and three U.S. states, Georgia, New York, and Pennsylvania”.
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Prosecutors have revealed the details of a scheme that saw stock traders and hackers team up to make as much as $100m (£64m) in illegal profits over five years.
In one example alleged in the charge sheet, just 36 minutes of advance warning about an “earnings downgrade” was enough for the defendants to place sure-fire short-selling trades that netted more than $500,000 in the first 10 minutes after the announcement went public.
Five of the defendants were arrested in Georgia Tuesday morning, the Justice Department said.
Those charged include two Ukrainian men, Ivan Turchynov and Oleksandr Ieremenko, who allegedly hacked into newswire services to steal the releases before they were sent out by the wire services. The hackers stole more than 150,000 press releases that detailed upcoming mergers, acquisitions and earnings announcements, according to the Verge.
Criminal charges were filed in two separate indictments against Turchynov, Ieremenko and seven other individuals in U.S. District Courts in New York and New Jersey. “As a result, the trader defendants had an unfair trading advantage over other market participants because they knew the content of the press releases before they were publicly announced”.
The defendants were a “well-organized group that allegedly robbed the newswire companies and their clients and cheated the securities markets and the investing public by engaging in an unprecedented hacking and trading scheme”, U.S. Attorney Paul Fishman of District of New Jersey said in a statement.
The SEC is charging the hackers and traders with violating anti-fraud laws, and is pushing them to return their profits with interest and penalties.
The same scam was done with another earnings report from Caterpillar the following quarter, that time generating more than $1 million for the defendants, authorities charge.
Officials said the case illustrates the increasing sophistication of criminal networks, both in their ability to hack sophisticated computer security systems as well as their acumen in using intricate trading strategies to hide the scheme and who was behind it.
In other instances, authorities said, the hackers used more complex attacks, including inserting malicious programming code into applications or websites used by the companies in order to gain access to databases of corporate news releases.
FireEye believes the hacking group started in mid-2013 and has since gone after more than 100 publicly traded companies, law firms, third-party consultants and investment bankers.
“This is the story of a traditional securities fraud scheme with a twist – one that employed a contemporary approach to a conventional crime”, Diego Rodriguez, FBI assistant director-in-charge, said at a news conference.
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The hackers allegedly stashed the payments under the names of shell companies and individuals in accounts in Estonia, Macau and elsewhere, the indictment alleged.
